Using Chapter 13 Bankruptcy to Reduce Car Payments

Chapter 13 Can Reduce Car Payments

Personal bankruptcy offers those struggling with debt an opportunity for a fresh start. Chapter 13 bankruptcy is sometimes called “wage earners” bankruptcy because individuals filing under Chapter 13 are employed, and the payment plan uses their income to pay off the debts. In some cases, debts can be reduced under a payment plan approved by the court.

Using Chapter 13 to Prevent Auto Repossession

Often times, people would be fine financially if they didn’t have a car payment. Chapter 13 bankruptcy can sometimes be used to reduce debt owed on a vehicle, even if a person is late on payments. For people in Chicago, who depend on their cars for transportation, a Chapter 13 bankruptcy can help them stop car repossession while getting back on their financial feet.

Vehicle Cram Downs

For people who qualify, cramming down on their auto loans is a great way for them to reduce their car payment. A “cram down,” reduces the outstanding amount due on a car loan to an amount equal to the current value of the car.

If the value of the car is less than the value of the outstanding auto loan, and certain other requirements are met, then the Chapter 13 plan can cut not only how much is owed on the loan but also the interest rate.

The following are the requirements for a vehicle cram down in a Chapter 13 bankruptcy:

910 days – or two-and-a-half years – must have elapsed since ht loan was originated
The loan on the car must be greater than its fair market value
To make the cram down stick, a person cannot miss a payment on the bankruptcy plan and must complete the plan in full.

Motor Vehicles in Chapter 13 Bankruptcy

Whether or not a person is eligible for a cram down, all cars that have financing arrangements on them must be paid as part of the Chapter 13 plan. This means that instead of paying the car company, payments for the car will be made to the trustee as part of the payment plan.

Payment plans will last between 3-5 years, even if the auto loan agreement stated a shorter or longer payment period.

In addition, co-signers on the loan who are not in bankruptcy remain liable for the full amount of the loan.

If you are looking for creative solutions to your debt problems that have the strength of the bankruptcy court to support you, you should speak with a Chicago to review your options.

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All calls are routed through our Downtown office for your convenience.

Phone: 312-967-3159

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